Cost Output Relationship in the Long Run
Cost Output Relationship in the Long Run The long-run cost-output implies the relationship between the changing scale of the firm and the total output. In the long run, only the average cost is important and considered in taking long term output decisions. The long-run average cost is the long-run total cost divided by the level of output. It is the least possible cost of producing the given level of output when all the factors are variable. Long-run average cost curves will normally be U-shaped just as short-run curves are, but they will always be flatter than the short-run ones. The reason is obvious that the scale of operations of the firm can be changed and all the costs become variable because there are no fixed factors in the long run. Over a long period, the size of the plant can be changed, unwanted buildings can be sold, and administrative and marketing staff can be increased or decreased to deal efficiency and can be used more economically. Thus, the average cost will be ...